For Profit Schools: ITT Tech

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The sound of one hundred and thirty doors shutting simultaneously was heard across the nation on September 6, 2016, as ITT Tech, otherwise known as ITT Technical Institute, shut its doors to its students for good (Cohen). This experience, in fact, was not actually new to some campuses, because a decade or so ago, some schools were closed temporarily, as search warranted federal agents bombarded the schools looking for evidence pointing to fraud, as it related to the recruitment of its students, its loan agreements, post graduation job placement and salary rates, enrollment and dropout statistics, and grade aggrandizement (Cohen). In August, the U. S. Department of Education banned ITT Tech’s parent company, ITT Educational Services, Inc., out of Carmel, Indiana, from using federal to enroll new students. The decision was based on the company’s anticipated loss of accreditation and its current financial instability. Institutions of higher education are given accreditation or rendered unaccredited, based on their ability to meet certain established quality standards (“The Database of Accredited”). The school obtains accreditation through an accrediting agency, which is a private organization that establishes evaluation criteria, and then assesses if the criteria is being met at the educational institution within its jurisdiction. If the institution that seeks accreditation is found to be acceptable pursuant to the agency’s standards, the educational program will become accredited by the agency. The U. S. Department of Education, keeps a database of agencies it views as appropriate to render accreditation. The Department does not accredit schools itself (“The Database of Accredited”).

There was a time when ITT Tech was the darling of Wall Street, sustaining burgeoning growth and exemplary profits (Cohen). The company was originally founded as a component of International Telephone & Telegraph, but the educational program became an independently, publicly traded company in the 1990s. The split came amidst a time when the privatization of academia was a mushrooming and well received concept. The thinking was that a business that operated with the goal of profit could do a better job than the government or a nonprofit. Investors attacked the prospective of the success of the for-profit industry like flies to honey. The time also reflected the employment shift where those who were not making as much money as they wanted, saw taking classes as a way to achieve the American dream. ITT Technical Institutes and other similar institutions offered the dual golden carrot, of excellent future job potential for the students, and ever-increasing enrollment and profits for investors (Cohen). 

Wall Street was in total awe of the success that the for-profit sector was experiencing (Cohen). During 2000 to 2003, compared with the lackluster performance of the Standard & Poor’s 500-stock index, shares for publically traded academic institutions were flourishing beyond investors’ wildest dreams (which should have been a harbinger of death to those who understand the sweet music of Wall Street). Talking financial heads were touting the success of ITT Tech to all that would listen, and many were listening. But amidst the hubbub, accusations of predatory practices abounded. Although the 2004 federal raid, which resulted in the temporary closure of some ITT Tech locations, ended, suspicions remained firm for ITT Tech and others (Cohen). 

ITT settled a California lawsuit in which employees alleged that the company exaggerated student’s GPAs in order for them to obtain increasing levels of financial aid from the State (Lederman). Later investors filed lawsuits in the belief that the company had gained their investments through fraud (Cohen).

ITT Educational Services

On Thursday, August 25, 2016, the U. S. Department of Education prevented ITT Educational Services from enrolling future students who needed federal financial aid and, in addition, demanded that the company pay $153 million in reparation within a 30 day period to address refund requests in anticipation of the school’s closure (Morgenson). The Department’s requirement did not prevent the school from enrolling students who could pay the school’s tuition themselves, but since the program relies heavily on federal funds for its survival, the demand from the Department meant that the school’s closure was essentially inevitable. The federal funding program allocations represented just under 70% of the company’s $850 million in revenues. Secretary of Education John B. King Jr., stated that action was taken because there was a definitive need to protect the students and also, a need to protect the U. S. taxpayers, who would ultimately be on the hook for any failures to pay back the education loans. The company’s shares, which at one point in 2012, were as high as $75, closed at $1.40 (Morgenson).

Although the death knell had been sounding for some time, in an incessant attack from all borders, the spear in the heart came when the Accrediting Council for Independent Colleges and Schools advised ITT Tech that they had not met the agency’s quality standards for accreditation (Morgenson 2). The parent company stated that it believed that it had been in compliance, but recognized that if it were to lose its accreditation, it would also lose access to the government financial aid loans.

Student Debt: The Road to Nowhere

According to the Brookings Institution, in 2014, ITT Tech had 191,225 students who were borrowing money from federal government loans program to attend school, a total of $4.6 billion in debt, which is approximately $24, 000 a borrower (Morgenson 2). It is extremely likely that the number is significantly higher now. The problems encountered by students abound. Wilfred American Educational Corporation was a well known beauty and secretarial school that operated in the 1980s. The school engaged in predatory enrollment practices and was closed in the 90s once it was determined that the company had engaged in falsifying student aid applications. During the period between 1986 and 1994, Wilfred students had taken out over 61,000 loans, many of which have yet to be paid off by the students. From 1980 to 1989, the company received nearly $405 million in federally funded monies, practically their total revenue. In a lawsuit on behalf of previous Wilfred students, the Department of Education was sued stating that many of the loans were obtained through false information provided by the school and in some instances even without the knowledge of the student. When this type of situation occurs, the student should be eligible for a false certification discharge, which would release the student from having to pay the loan back (Morgenson 2). However, in this instance, the Department of Education failed to advise students that they were eligible for this arrangement and students were hounded for years  by debt collectors over non-payment. The failure to notify was the basis of the lawsuit brought by the Wilfred students. In most instances the original loan on average $2,500, ballooned into an even larger indebtedness of $24,000, which damaged students’ credit scores disallowing them from buying a car, a home or even renting an apartment. The inability to buy a car or rent an apartment is so fundamental that the failure on the part of the Department of Education substantially changed the lives of the students for the worse (Morgenson 2). 

The lawsuit alleged that the Department of Education failed the Wilfred students in a number of ways (Morgenson 2). One, the Department failed to determine if the loans were falsely certified; two, the Department enforced the loans without taking the original precautions; and three, the Department failed to send notification to the Wilfred students that as a consequence of the circumstances, discharge might be available to them, per the regulatory framework. In 2013, the battle with the Department began when the attorneys requested that they advise the former students that their loan debt would be forgiven. The Department’s response was that it only had limited evidence, specifically for students who had attended the Philadelphia branch. However, based on the Department’s inspector general’s findings, that fraud had occurred at close to 50 of the Wilfred locations, and was so ubiquitous, it was recommended that a discharge for the students be approved (Morgenson 2).

A plaintiff in the Wilfred lawsuit said that she attended school in 1987 in the Bronx to obtain a cosmetology degree (Morgenson 2). In as little as three months, she left the school and not too long thereafter the school closed. The school required that she sign some final papers, but she was not aware that the cosmetology school was having her sign to approve loans made in her name. The loan for $7,000 turned into a $22,000 debt with an endless barrage of debt collectors constantly calling her. She says that her credit was ruined and that thirty years later she is just getting her credit back in order, bit by bit. Finally, the suit is going to go forward. The lawyers for the students stated that the Department of Education was extorting the students based on their lack of awareness, no less than the schools took advantage of the students’ susceptibility (Morgenson 2).

The five for-profit schools that leave their students crippled by debt are:

(Figure redacted for preview. Available via download).

In a report prepared by the U. S. Department of Education on September 25, 2014, one in eight students, or just short of 650,000 borrowers, who took out a federal student loan and subsequently left school in 2011 has defaulted on their loan (Clark). In the case of the 4.8 million student borrowers who either graduated or abandoned their educational program, 13.7% of them failed to make a payment on the loan in nine months. Despite numerous newly introduced flexible programs to help students find an easier way to pay their debt, the statistics remain abnormally high. One of the repayment methods ties the payments to a mere 10% of the student’s discretionary income. The research director of the Institute for College Access and Success warns that schools that have a steep borrowing rate in conjunction with an elevated default rate, the students are ending up in a more burdensome position than when they started. Statistics demonstrated that specific for-profit institutions were the source of an inordinate amount of defaults (Clark). 

The Department of Education will end federal loans made to students of twenty one colleges that have the highest default rates. Of these twenty one colleges, twenty are for-profits (Clark). The schools with the largest default rates are generally small schools that are also considered technical or vocational school that claim to teach specific job skills. Most of the schools with the largest default rates are cosmetology or barbering schools. In addition to escalated federal loan default rates, the schools are under scrutiny for the use of misleading or false marketing information in their product promotions (Clark).

Works Cited

Clark, Kim."The 5 Colleges That Leave the Most Students Crippled By Debt." Time.com. Time, Inc. 24 September 2014. Web. 10 September 2016. <http://time.com/money/3426618/student-loan-default-factories/>.

Cohen, Patricia. "Downfall of ITT Technical Institutes Was a Long Time in the Making." The New York Times. The New York Times Company. 7 September 2016. Web. 10 September 2016. 

Lederman, Doug. "ITT, Calif. Settle False Claims Lawsuit." Inside Higher Ed. 18 October 2005. Web. 10 September 2016. <https://www.insidehighered.com/news/2005/10/18/itt>.

Morgenson, Gretchen. "ITT College Chain Barred From Enrolling Students With U.S. Aid." The New York Times. The New York Times Company. 25 August 2016. Web. 10 September 2016. <http://www.nytimes.com/2016/08/26/business/itt-college-chain-barred-from-enrolling-students-with-us-aid.html?rref=collection%2Ftimestopic%2FFor-Profit%20Schools>.

Morgenson, Gretchen 2. "Woes for ITT, a For-Profit School, Bode Worse for Its Students." The New York Times. The New York Times Company. 12 June 2016. Web. 10 September 2016. <http://www.nytimes.com/2016/06/12/business/woes-for-itt-a-for-profit-school-bode-worse-for-its-students.html?action=click&contentCollection=Business%20Day&module=RelatedCoverage&region=Marginalia&pgtype=article>.

"The Database of Accredited Post Secondary Institutions and Programs." U. S. Department of Education. <http://ope.ed.gov/accreditation/>.